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Interest Rates and durability in the Linear Expenditure Family

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  • Fisher, Gordon
  • McAleer, Michael
  • Whistler, Diana

Abstract

In this paper we demonstrate that the extended linear expenditure system with durables (DELES) satisfies the first-order conditions for local unidentifiability, and discuss alternative methods that might be used to achieve identifiability, as well as their implications. Estimates are then presented of the linear expenditure system (LES), the extended linear expenditure system (ELES) and DELES, under each of two alternative error specifications, using seasonally adjusted, quarterly Australian data from 1959(4) to 1976(2). The two main purposes of this exercise are: (i) to compare the effects of allowing for first-order autocorrelation in LES and ELES; and (ii) to gauge the contribution of DELES to the linear expenditure family by making corresponding comparisons with ELES. When we fix the decay rate for durables a priori, in an attempt to secure identifiability, the estimates of the remaining parameters are insensitive to the value chosen. This suggests a major difficulty in interpreting DELES and leads us to reconsider its limiting properties.

Suggested Citation

  • Fisher, Gordon & McAleer, Michael & Whistler, Diana, 1980. "Interest Rates and durability in the Linear Expenditure Family," Queen's Institute for Economic Research Discussion Papers 275166, Queen's University - Department of Economics.
    • Handle: RePEc:ags:queddp:275166
    DOI: 10.22004/ag.econ.275166
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    References listed on IDEAS

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    1. Lluch, Constantino, 1973. "The extended linear expenditure system," European Economic Review, Elsevier, vol. 4(1), pages 21-32, April.
    2. Beach, Charles M & MacKinnon, James G, 1979. "Maximum Likelihood Estimation of Singular Equation Systems with Autoregressive Disturbances," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(2), pages 459-464, June.
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    5. BARTEN, Anton P., 1969. "Maximum likelihood estimation of a complete system of demand equations," LIDAM Reprints CORE 34, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. Barten, A. P., 1969. "Maximum likelihood estimation of a complete system of demand equations," European Economic Review, Elsevier, vol. 1(1), pages 7-73.
    7. Rothenberg, Thomas J, 1971. "Identification in Parametric Models," Econometrica, Econometric Society, vol. 39(3), pages 577-591, May.
    8. Peter B. Dixon & Constantino Lluch, 1977. "Durable Goods in the Extended Linear Expenditure System," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(2), pages 381-384.
    9. Berndt, Ernst R & Savin, N Eugene, 1975. "Estimation and Hypothesis Testing in Singular Equation Systems with Autoregressive Disturbances," Econometrica, Econometric Society, vol. 43(5-6), pages 937-957, Sept.-Nov.
    10. A. A. Powell, 1973. "An ELES Consumption Function for the United States," The Economic Record, The Economic Society of Australia, vol. 49(3), pages 337-357, September.
    11. repec:bla:ecorec:v:49:y:1973:i:127:p:337-57 is not listed on IDEAS
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    Cited by:

    1. Chambers, Marcus J, 1992. "Estimation of a Continuous-Time Dynamic Demand System," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(1), pages 53-64, Jan.-Marc.

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